Money for Nothing (Or How Corruption Fuels Dam Building in Nigeria)

Thu, 03/20/2008 - 12:00am

Nigeria is being rocked by a huge corruption scandal. As President Yar’Adua recently revealed, the administration of his predecessor spent $16 billion on the power sector, but appears to have diverted much of the money. The ongoing investigation has unearthed interesting details about how corruption works in practice. The story involves dam builders from Germany, China and other countries and senior World Bank officials.

The Nigerian government has earned about $390 billion from its oil wealth since 1970. Yet the vast majority of Nigerians live on less than $2 per day. Unemployment is rampant, and infrastructure is in disarray. The main reason for this state of affairs is corruption.

In January, Nigeria’s new President Umaru Yar’Adua announced that between 1999 and 2007, the administration of his predecessor Olusegun Obasanjo spent $10 billion on the power sector without building any new power plants. A leading legislator soon raised the figure to $16 billion and started a parliamentary investigation into the matter. The scandal is currently unfolding, and keeps Nigerians glued to the TV screens. Here are a few interesting nuggets from a complicated web of deceit. They show how corruption favors mega-projects such as large dams, and how such projects in turn invite corruption.

Corrupt bureaucrats and politicians receive the highest benefits from approving new contracts for large projects, not from making sure projects are actually implemented, from promoting smaller-scale solutions which may be more effective, or from maintaining existing infrastructure. One popular sport is to shell out contracts for new projects without expecting the contractors to actually deliver. The companies and the politicians instead pocket the spoils. The ongoing parliamentary investigation in Nigeria has brought up many such cases, relating for example to the Kainji and Mambilla hydropower projects.

In April 2005, the German engineering company Lahmeyer got a contract to carry out a feasibility study for the huge Mambilla hydropower project in northern Nigeria. The 2600 megawatts Mambilla project would dam the Usam, Gembu and Ngu rivers and has been called Nigeria’s Three Gorges Project. Lahmeyer shot to fame as one of the first large international companies ever blacklisted by the World Bank after being convicted for bribery in the Lesotho Highlands Water Project in 2003.

Lahmeyer was supposed to carry out its Mambilla contract within 15 months, and collected $3.2 million for it. Yet nothing happened on the ground. The company only set up a bungalow near the future dam site, to create the appearance of project activities. The parliamentary committee which is investigating the matter claims that Lahmeyer has never even visited the project site, and asked the company to refund the money it received.

That ain’t workin that’s the way you do it
Money for nothin and chicks for free
- Dire Straits, Money for Nothing, 1985

So far, no criminal investigations have been carried out, and the involved parties, including Lahmeyer, deny any wrongdoing. But billions of dollars which have been spent are missing. And Mambilla and other projects have the fingerprints of corruption all over them. Here are a few indications:

Approving new projects is so lucrative that powerful politicians try to reserve decision-making powers for themselves. Under President Obasanjo, the technical experts of the energy ministry were kept out of the loop on new power plants. All decisions were taken by a committee which included the President and several influential ministers and state governors. Many contracts were awarded without competitive bidding. Some contracts were awarded to companies headed by former presidents and other powerful figures, and $50 million was paid to companies which did not even exist.

In the case of Mambilla, an earlier president had already awarded construction contracts in 1982, but nothing happened on the ground. The large project was so attractive that President Obasanjo created and chaired a special committee on Mambilla a few weeks before the end of his tenure. The President handed a new contract to China Gezhouba Group Corporation, the main builder of China’s Three Gorges Dam. The only other thing which has so far happened was a ground-breaking ceremony to inaugurate the project – the kind of ribbon-cutting event that publicity seeking politicians love.

The Mambilla Project was supposed to be financed with a loan from China Exim Bank to the tune of $1.6 billion. In exchange for the loan, the China National Offshore Oil Corporation (CNOOC) was supposed to receive four oil blocks in an auction of oil resources which the President also organized just before leaving office. Yet the Mambilla contract and the oil blocks were handed off in such a hurry that many details could not be sorted out. Gezhouba, CNOOC, China Exim Bank and the Nigerian government are now bogged down in difficult negotiations over the contracts, and the hydropower project appears to be stalled.

China Exim Bank does not have a policy on corruption, and the institution’s president has played down the importance of corruption in the past. “You can’t stop a country’s development because of some corruption”, President Li Ruogu said in December 2007. “That doesn’t help. You cannot refuse to eat because you might choke.” The Nigerian experience shows that corruption can effectively stop development. Contractors face delays, court cases and possibly cancellation of their contracts. More importantly, consumers, taxpayers and affected communities are straddled with projects that may not address their needs, may damage the environment and are over-priced.

Chinese dam builders are not the only parties that may get burned in the ongoing anti-corruption investigation. The World Bank has also funded several projects in Nigeria’s power sector. And two Nigerian politicians who were involved in approving misguided projects have in the meantime joined the World Bank’s senior management. Obiageli Ezekwesili was involved in the decisions as a minister and Director-General of the government’s Due Process Office under President Obasanjo. She is now the World Bank’s Vice President for Africa, and has tried to downplay the amount of money which her government spent on the power sector. Ngozi Okonjo-Iweala was involved as the former minister of finance, and is now the Bank’s Managing Director.

Ironically, Ezekwesili and Okonjo-Iweala have repeatedly spoken out against corruption, and former President Obasanjo is a co-founder of Transparency International. Both former ministers have been summoned to testify before Nigeria’s investigative committee, and the committee’s chair threatened to issue an arrest warrant for Okonjo-Iweala if she refuses to appear before the committee.

The independent World Commission on Dams (WCD) found clear evidence for the link between corruption and the bias for large dams in national planning processes. The WCD report states (p. 187): “At whatever level, vested interests can distort the decision-making process, undermining development. Decision makers may be inclined to favour large infrastructure as they provide opportunities for personal enrichment not afforded by smaller or more diffuse alternatives.”

The WCD proposed a balanced, transparent and participatory assessment of all needs and options in order to counter the influence of corruption and other vested interests in water and power sector development. The Society for Water and Public Health Protection (SWAPHEP), one of our trusted partner groups, is pushing for a WCD approach in Nigeria. The World Bank and many governments have rejected such an approach claiming that it would consume too much time. Compared with the eight years and billions of dollars wasted by the Obasanjo government and its accomplices in Nigeria, a balanced and transparent options assessment process looks like a very good investment.

This is not the first time I have covered the link between bribery and the bias for large dams. As a native of Switzerland, where $500 million stolen by former Nigerian dictator Sani Abacha were frozen on bank accounts and eventually returned, I have developed a keen interest in how corruption affects development. To read more about this topic, see the text on the environmental impacts of corruption which I wrote for TI’s 2005 Global Corruption Report, and the Pakistan case study which Shannon Lawrence and I published in the Far Eastern Economic Review in May 2006.